Should you release the tax free 25% lump sum that is available from your pension when you first retire? Many people use that cash to pay off debts, make an investment, or help their family. For example some people use it to help children to buy a house or pay for university. But there is a strong argument for the other option – leaving the money in your pension, to grow and provide you with more income later in retirement. Some people argue that you may need the money more when you are older, when for example, health concerns may be a factor.
ThisIsMoney explains the arguments on both sides –
“Unless you have a definite plan for your cash, this [saving the money for later] can be a more financially savvy decision than putting the money in a bank account to be ravaged by inflation and poor interest rates… You will still get 25 per cent of your pot tax-free later on – always assuming the rules don’t change… However, banking on no change is a big ask for some. Fear of the Government abolishing the lump sum perk is the crux of the matter for many people, given how much politicians have meddled with pensions over the years… We look at what to weigh up when you are deciding to take some, all or none of your 25 per cent tax-free lump sum at retirement. And we discuss how likely it is the Government will scrap the tax break, and raid past savings or future ones… “